Cyprus capital gains tax laws on the disposal of property

capital gains taxThe Capital Gains Tax laws in Cyprus and the UK are different. When you sell your main residence in the UK, you are not liable for Capital Gains Tax.

However, when you sell a property in Cyprus, even though it may be your main residence, you are liable to pay Capital Gains Tax is charged on its disposal.

Any Capital Gain is liable to be taxed at the rate of 20%. Subject to certain conditions, individuals may claim the following deductions:

These deductions are granted once in the lifetime of the individual, until fully exhausted and if an individual claims a combination of them, the maximum deduction granted cannot exceed €85,430.

Capital gains tax - exemptions

Under the law, certain disposals are not subject to Capital Gains Tax:

  • Transfers arising on death.
  • Gifts made from parent to child or between spouses or between up to third degree relatives. (A third degree relative is one with whom an individual shares about one-eighth (12.5%) of their genes. Third-degree relatives include your great-grandparents, great-aunts, great-uncles, and first cousins).
  • Gifts to a company where the company shareholders are members of the donor’s family and the shareholders continue to be members of the family for five years after the date of the transfer.
  • Gifts by a family company to its shareholders provided such property was originally donated to the company. The property must be kept by the recipient for at least three years. For gifts that were made by the company to its shareholders that took place before 28 May 1999, the exemption applies irrespective of how the immovable property was originally acquired by the company.
  • Gifts to charities and the Government.
  • Transfers as a result of reorganisations.
  • Exchange or disposal of immovable property under the Agricultural Land (Consolidation) Laws.
  • Expropriations (for example, if the property is compulsory purchased).
  • Exchange of properties, provided that a number of conditions are met:

The base date for calculating the acquisition cost of property is 1st January, 1980. If the property was built after this date it is calculated backwards.

Capital gains tax - allowances

Under the law, the chargeable gain as adjusted for inflation, but certain lifetime exemptions apply to individuals for the disposal of their main residence.

To calculate the inflation adjustment, the Consumer Price Index (CPI) is used for the month preceding the disposal of the asset and the month of its acquisition.

The €17,086 deduction rises rises to €85,430 if the property has been the main residence of the tax payer for a minimum period of five years. To take advantage of the full allowance, the land on which the house is built must not exceed 1,500m2. If it exceeds this size, you will pay tax on the percentage over 1,500m2.

Further allowances are granted for ‘Allowable Expenses’:

  • Property transfer fees.
  • Stamp duty.
  • Estate agent’s commission (but only if the estate agent is licensed by the Cyprus Real Estate Agents’ Association).
  • Professional fees.
  • Accepted capital additions and improvements - planning permission where necessary.

Indexation can be applied to the above expenses as well as the initial purchase price and must be submitted with invoices and receipts for the costs incurred.

Additional allowable expenses are also granted for:

  • Immovable Property Tax.
  • Interest on loans used to buy the Property, assuming that the interest payments have not been used to offset other tax liabilities; e.g. Income Tax.

These expenses cannot be indexed.

Note that the €17,086 is a personal allowance. So if the property is owned in joint names, e.g. husband & wife, each owner is entitled to the exemption of €17,086.

Note that the above allowances are granted once in the lifetime of the individual, until fully exhausted. If an individual claims a combination of them, the maximum deduction granted cannot exceed €85,430.

Please note that different Inland Revenue offices and even different officers in the same Inland Revenue office appear to interpret the CGT laws in different ways.

Capital Gains Tax does not apply to profits resulting from the sale of overseas property by residents who were not resident in Cyprus when they purchased the property. So if you buy a home in Cyprus and become resident here, you will not be liable for Capital Gains Tax in Cyprus should you subsequently sell your property in the UK.

(Note that if you’re planning to sell your home in Cyprus and return to the UK, you may be required to pay some Capital Gains Tax to the UK authorities as well as the Cypriot authorities. However, the UK authorities may deduct any Capital Gains Tax you have paid in Cyprus, so make sure you take all your paperwork with you).

Reducing your capital gains tax liability

‘Under the table’ payments are, of course, illegal. However, there are perfectly legal ways of reducing your Capital Gains Tax liability:

  • Capital losses may be used to offset the gain.
  • If you are selling your property partly or fully furnished, come to an arrangement with your buyer whereby they purchase any furniture, etc. using a separate agreement. This will reduce your Capital Gains Tax liability as the items included in the agreement should not be liable for Capital Gains Tax.

But be sensible! Don’t try and sell your home for 5,000 and its contents for 175,000 – the authorities will be down on you like a ton of bricks!